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Existence, multiplicity and policy prescriptions for debt sustainability in an OLG model with fiscal policy and debt

Author

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  • Lorenzo Cerboni Baiardi

    (University of Pisa)

  • Ahmad Naimzada

    (University of Milano-Bicocca)

Abstract

We consider the overlapping generation model formulated in Dioikitopoulos (J Econ Dyn Control 93:260–276, 2018). Its innovative approach involves endogenous adaptations of the deficit/surplus to debt and income levels through an empirically estimated fiscal policy rule. We improve the analysis of the model in order to tackle the issue of debt sustainability. In detail, we derive the analytic expressions of stationary states of the model as well as necessary and sufficient existence conditions.Moreover, our mathematical analysis sheds new light on the role of fiscal parameters and policy prescriptions. As a result, low deficit levels can be associated with the presence of steady-state configurations, which is a prerequisite for sustainable economic patterns to be achieved.

Suggested Citation

  • Lorenzo Cerboni Baiardi & Ahmad Naimzada, 2020. "Existence, multiplicity and policy prescriptions for debt sustainability in an OLG model with fiscal policy and debt," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 43(2), pages 769-786, December.
    • Handle: RePEc:spr:decfin:v:43:y:2020:i:2:d:10.1007_s10203-020-00284-w
    DOI: 10.1007/s10203-020-00284-w
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    References listed on IDEAS

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    More about this item

    Keywords

    Fiscal sustainability; Fiscal rules; Bond-financed deficit;
    All these keywords.

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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